Despite finding that the director of failed manufacturing
company, Forgecast Australia Pty Ltd (Forgecast),
had hoped to 'cast onto GEERS the burden of the redundancy
entitlements', the Federal Court has dismissed an application by
the Automotive, Food, Metals, Engineering, Printing & Kindred
Industries Union (AMWU) and the Australian Workers
Union (AWU), which sought to make the company
director personally liable for the redundancy entitlements.

The case

On a number of occasions, Forgecast faced serious solvency
issues. In June 2004, Forgecast went into voluntary administration
and as part of a reconstruction made a number of its employees
redundant. Forgecast paid only 50% of those employees' redundancy
entitlements.

In mid-2009, Forgecast was again in dire financial trouble and
the company took steps to address its financial state. Ultimately,
Forgecast's largest secured creditor, Ideal Pty Ltd
(Ideal), resolved - pursuant to its loan agreement
- to appoint receivers and managers (importantly, the sole director
of Ideal was also Forgecast's sole director and secretary).

For several weeks, the receiver continued to conduct the
Forgecast business. However, following failed negotiations with the
unions and stop-work action, the receiver terminated the employment
of all the Forgecast employees by reason of redundancy. In
contravention of the collective agreements with the AMWU and the
AWU, Forgecast did not pay the employees any of their entitlements
in respect of redundancy. The company was later wound-up.

The unions argued that the former director was a 'person
involved' in unlawfully failing to pay the redundancy entitlements
of the employees of Forgecast and should be personally liable to
compensate the employees.

The director cross-claimed against the receiver.

Accessorial liability under the Fair Work Act

The Fair Work Act 2009 (Cth) (Act)
introduced accessorial liability provisions enabling the
prosecution of any person involved in a contravention of a civil
remedy provision under the Act.

In this case, it was accepted that Forgecast's failure to pay
the employees' redundancy entitlements in accordance with the
collective agreements was a contravention of a civil remedy
provision.

The Act states that a person is 'involved in' a contravention if
the person aided or abetted a contravention, induced or procured a
contravention, conspired with others to effect the contravention,
or was in any way 'knowingly concerned' in that contravention.

Findings

The principal question in the proceeding was whether Forgecast's
director was a 'person who is involved' in the contraventions. For
the unions to succeed, they had to show that Forgecast's director
participated in the contravention intentionally and with knowledge
of the facts constituting the contravention.

The court found that the director's intention was to continue in
the business and retain control over Forgecast. As part of his
desire to retain control over the business, he also wished to
reduce the number of employees and to cast onto GEERS the burden of
any payments made to redundant employees.

However, the court accepted that, once appointed, the receiver
was the directing mind and will of Forgecast. The receiver was
required to act, and had in fact acted, without any obligation to
carry out the wishes of the director.

Accordingly, the director was not liable. The receiver had
terminated the employment of the employees and the receiver and the
director were not 'linked in purpose'. The receiver's intention was
to deal with the financial position of Forgecast 'in the normal
way'. Since the director and the receiver had no common intention,
the director could not have been a person involved in the
contraventions.

The application and cross-claim were dismissed without orders as
to costs.

For reconstruction and insolvency practitioners

This case demonstrates that unless a 'common intention' is
found between the director and the controller (acting in the shoes
of the company under external control), the director will not be
found personally liable for a contravention.

Although the director was not liable in this test case (due
largely to the fact that the receiver had stepped in and started
performing its normal functions), where it can be established that
the director and the controller acted together in contravention of
the civil remedy provisions, both the director and the controller
may be liable under the Act. In addition, there is a risk that the
director may seek a contribution from the controller personally (as
was the situation in this case).

Given that matters litigated under the Act are usually on a 'no
costs' basis, unions and employees are unlikely to be discouraged
from bringing claims because of the risk of an adverse costs order.
Courts are only likely to impose costs orders where the claim is
vexatious or without reasonable cause.

It is critical that practitioners avoid being personally
'involved' in contraventions of the Act. The case makes clear that
a person will be personally liable for a contravention where he or
she participated in the contravention intentionally and had
knowledge of the facts constituting the contravention.